New: 🧠 Market Minds Issue #145

We appreciate each and every one of you for taking the time to read Market Minds. Buckle up and enjoy the free value, and you won’t want to miss… a house that rotates 320 degrees, because apparently facing one direction was too conventional.

More homes are coming onto the U.S. market. New listings have reached their highest level since April and are up 6% from a year ago. Total inventory is rising too.

But buyers aren’t following. Pending sales fell 1.1% in a week to their lowest level in six months and are down 3.1% year over year.

After years when buyers competed for scarce inventory, sellers are increasingly competing for scarce buyers.

The median home now sells for about $401,000, up 1.9% from last year. Mortgage rates are around 6.65%, putting the typical monthly payment at roughly $2,600.

So while buyers have more choice, affordability hasn’t improved much. Mortgage applications are down 5% from last year, and some buyers are waiting for rates to fall.

That’s the strange part of this buyer-friendly market: Buyers are gaining leverage largely because many of them have decided not to buy.

For buyers who can make the numbers work, there’s an opening. Homes are taking a median 44 days to sell, about one in five listings has cut its price, and the average sale closes below asking.

That gives serious buyers room to negotiate — particularly on homes that have been sitting for weeks. The conversation can now include a lower price, repairs, closing concessions or a mortgage-rate buydown.

The shift isn’t uniform. Seattle and Austin are seeing prices fall, while West Palm Beach, Newark and several Midwest markets are still posting strong gains. National inventory also remains below the level normally associated with a balanced market.

Still, sellers can no longer assume yesterday’s price will find tomorrow’s buyer.

Buyers have leverage again. Whether that makes housing affordable enough to bring them back is the unresolved part.

A growing number of Americans aged 25 to 39 are living with their parents while supposedly approaching their prime homebuying years. The easy explanation is delayed adulthood. The data makes that harder to sustain.

More than 70% of young adults living at home are employed. Many aren’t waiting to get a job. They’re waiting for the economics of having one to matter.

These “shadow buyers” are most concentrated in expensive coastal markets. Riverside leads at 8.3% of households, followed by Los Angeles at 7.8%, New York at 6.5%, Miami at 5.8%, and San Jose at 5.5%.

Some of this reflects cultures where multigenerational living is more common. But then there’s Los Angeles: Buying the median-priced home requires an estimated income of $319,000. The median shadow buyer there earns $36,100.

At that point, the problem isn’t really saving for a larger down payment.

Housing markets often treat young adults living at home as future buyers waiting on the sidelines. That may be too optimistic.

Even households earning the national median income of $106,000 are considered cost-burdened when purchasing a typical home. And in the most expensive cities, a modest decline in mortgage rates barely touches the gap between what younger workers earn and what homes cost.

There may be enormous demand for homeownership sitting inside America’s full nests. Demand without purchasing power, however, doesn’t buy many houses.

Improving affordability probably requires several things to happen together: lower mortgage rates, slower home-price growth, and wages rising faster than housing costs.

Until then, another route becomes more important — family wealth.

Homeownership has traditionally been a way to accumulate wealth. Increasingly, some young Americans may need accumulated wealth from their parents before they can participate.

The nest is full. The question is whether it’s temporary.

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Kevin Warsh used his first major speech as Fed chair to make one thing clear: He doesn’t think monetary policy is particularly restrictive.

Housing and agriculture are feeling the pressure. But elsewhere, credit remains available, businesses are increasing investment, profit margins are historically high, and corporate borrowing markets look healthy.

That creates an awkward conclusion for anyone waiting for cheaper money: Rates may feel high, but the economy isn’t behaving as if they’re high enough to force the Fed’s hand.

Inflation remains above the Fed’s 2% target, and Warsh says bringing it down should be the priority. The labor market makes that position less comfortable.

The U.S. lost 23,000 jobs in July when economists expected roughly 83,000 gains. Payrolls have declined in seven of the past 20 months. Yet unemployment edged down to 4.1%, and Warsh still describes the economy as broadly at full employment.

So far, he sees weakness around the edges, not a broken labor market. The question is how long that distinction holds.

Warsh also wants to change how the Fed communicates.

He’s skeptical of forward guidance, arguing that it can create a circular relationship: Markets trade on what they think the Fed will do, then the Fed looks at those same markets for information about economic conditions.

His preference is a quieter central bank, with short-term interest rates doing more of the work and fewer clues about what comes next.

AI adds another uncertainty. Warsh sees the potential for higher productivity and stronger economic growth, while businesses pour capital into chips, energy, cloud infrastructure and AI models.

But the productivity payoff is still a question, not an answer.

For now, Warsh sees an economy that has strengthened, inflation that remains unfinished business, and financial conditions that can tolerate current rates.

For borrowers, especially in commercial real estate, resilience has an inconvenient downside: It gives the Fed less reason to provide relief.

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More homes are hitting the market, but buyers aren’t following: new listings are up 6% from a year ago while pending sales are down 3.1%, giving those who can afford today’s roughly $2,600 monthly payment more room to negotiate. Meanwhile, millions of potential “shadow buyers” may be further from entering the market than they appear — more than 70% of young adults living with their parents are employed, yet in places like Los Angeles the median shadow buyer earns $36,100 against an estimated $319,000 income needed to buy the median home. And anyone waiting for the Fed to solve the affordability problem may need patience: Kevin Warsh says broad financial conditions still aren’t restrictive and inflation remains above 2%, leaving little urgency for rate relief even as housing feels the strain.

Have a great weekend - we’ll see you next Saturday.

Cheers 🍻

-Market Minds Team

The content of Market Minds is provided for informational purposes only and reflects personal opinions based on sources believed to be reliable. It does not constitute financial, investment, legal, or professional advice. Each reader is solely responsible for their own decisions.